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The RBI governor said recent scandals underlined the need for better internal evaluation of lending processes and banking must become more engaged and informed
Reserve Bank of India (RBI) governor Dr Raghuram Rajan feels that the banking sector needs to question the categories under priority sector lending.
Speaking at a banking conference organised by FICCI, he said, "Select special sectors need ease of credit ... the biggest need for agriculture is long-term money while farmers don't get long-term loans because short-term loans are subsidised".
He said bankers need to "ask if students studying abroad are more needy?"
Reiterating a host of issues in the banking sector, Dr Rajan added that select special sectors need ease of credit. Interest subventions and loan waiver schemes can distort prices and lead to unhealthy borrowing practices, he added.
The RBI governor pointed out that the loan waivers, as proposed by the Andhra Pradesh chief minister, were not healthy for the banking system and could distort prices and the credit culture.
Further, he said the Pradhan Mantri Jan Dhan Yojna is an internal priority and that direct benefit transfers would reduce leakage and limit distortion of prices.
He also cautioned banks on duplication of accounts opened and asked them to ensure that the newly opened accounts work and make the scheme more effective.
The priority sector lending requirement currently is at a minimum of 40%, including sectors such as agriculture, education, rural housing, micro and small sector enterprises, among others.
It is time the government de-regulated diesel prices in the wake of falling global crude oil prices, the RBI Governor said.
He said falling inflation was consistent with the RBI’s forecast. According to the RBI Governor, the dip in IIP showed recovery was still uneven.
Recent scandals underlined the need for better internal evaluation of lending processes. Banking must become more engaged and informed, he said.
Rajan reiterated the call for more operational freedom for State-run banks.